How Long Can Prices Rise?

Home prices have been rising for the past six years. And that rate of home price appreciation has been accelerating for the last two years.

“How long can this last?” real estate consumers and professionals keep asking. The answer? It depends upon whom you ask.

Lawrence Yun, chief economist with the National Association of REALTORS®, could not be more clear. He said, “The continuing run-up in home prices above the pace of income growth is simply not sustainable. From a cyclical low point in home prices 6 years ago, a typical house price has increased by 458% while the average wage rate has grown by only 14%.”

Aaron Terrazas, Zillow’s chief economist, has another point of view. He said, “A generally strong economy and a favorable demographic tailwind driven by the huge millennial generation aging into their home buying prime will help ensure that demand (for housing) stays high, even as prices rise. Getting a mortgage remains incredibly affordable compared to paying rent each month.”

Genworth’s chief economist, Tien Lu, is also bullish about home prices but he, unlike Terrazas, has a caveat. “Lu said, “Supply pressures will continue to drive price appreciation…” His caveat is that price appreciation will continue to “…freeze out a large percentage of the 2.7M first time buyers who have taken themselves out of and are missing from the market.”

Nela Richardson, Refin’s chief economist, is a bit more equivocal about continued home price appreciation than his peers. “April was the first time in 27 months that we saw a year/year decline in the number of customers touring homes.” He chocks up the low touring numbers to “…very low levels of new listings in March.”

Richardson, however, saw increased new listings in April, albeit listings tilted toward higher-priced tiers which again preclude most first time buyers. First time buyers aside, Richardson thinks those touring numbers will increase and will in turn continue to” moderately” push up prices.

Almost sounding a bit fatalistic, David M. Blitzer, Managing Director and Chair of the Index Committee with the S&P Dow Jones Indices, said, “…until inventories increase faster than sales, or the economy slows significantly, home prices are likely to continue rising.”

All of the people quoted here in this post mentioned rising interest rates as a possible and/or mild deterrent to rising home prices but that deterrent is not seen as strong enough to actually curtail rising home prices.

So, still no answer to the question of “how long.” The only thing to know for sure is that now, at least, all of these experts are thinking about and trying to answer the question.